Tuesday, November 21, 2006

Income Splitting

And now for something my diminutive readership will find absolutely fascinating: tax policy!

Word is out that the Tories are considering instituting income splitting. This is wonderful news- income splitting eliminates counter-incentives to division of labour efficiencies within households.* (Be enthused, people!) But at the same time, income splitting gives a financial incentive to marriages of convenience. How to solve the problem? Any definition based on marriage likely won't pass constitutional muster. So here's the solution: make the income-splitting dependent on whether the couple have children. Most household labour division relates to raising children, so it is a restricting the tax benefit to parents is fair while also inoculating the initiative against most of the adverse incentives in the system. The simplest way to do this is to confine the income-splitting privilege to couples with natural children. This would provide a disincentive against divorce and remarriage (astute observers will observe that income-splitting in general provides an incentive against divorce generally). Income splitting should also be available for 1) foster parents and 2) adoptive parents**.

This policy immediately is pro-family stability (if not pro-marriage); pro-adoption; anti-bobo***; pro-natalist; and pro-efficiency. What more can one ask for in a policy? (Yeah, World Peace, but let's not get greedy.)

*Yes, that's code for stay-at-home parents. Up with the Patriarchy!**I'd originally said adoptive parents of two children- in order to avoid the possibility of people adopting principally for the tax benefit. After further reflection, I don't think this is a significant risk.***Those famous bourgeois bohemians, many of whom are DINKs (Dual-Income, No Kids) who won't get anything. Bobos also tend to have children later (more time without income splitting) and break up more often (losing the benefit).

Michael, do you have a reference for that? The Tories already have introduced it for pension income, and the hint is that they're considering it for all. Maybe another rumour is going round, but I haven't heard it yet.